How to Build Business Credit with Poor Personal Credit

Lenders evaluate your business credit to determine your creditworthiness. It helps them decide if your company is eligible for financing, and it demonstrates financial responsibility to prospective vendors, business partners, and investors.

Building business credit typically means utilizing your personal credit as a starting point. Yet, poor personal credit can be a stumbling block for many entrepreneurs when trying to do this. Let’s take a look at how to build business credit with poor personal credit.

Establish Your Business as Legitimate

Before you can build your business credit, the credit bureaus need to know your company is out there. Getting a federal employer identification number (EIN) and forming a limited liability company (LLC) or corporation helps establish your business as legitimate.

It also helps to legally separate your personal and business identities while shielding your personal assets. Other steps you can take include:

  • Opening business bank accounts for your business. At the very least, you should create a checking account from which you pay all of your business-related expenditures. Be sure to use your legal business name on your accounts.
  • Creating a dedicated company phone line and having it listed under your legal business name and business address. 
  • Obtaining a business license and preparing a professional business plan.
  • Acquiring a D-U-N-S Number by signing up with Dun & Bradstreet. This unique nine-digit number is utilized to identify your company’s phone, address, name, etc. Potential lenders or partners can request a D&B business credit report using your D-U-N-S Number.
  • Maintaining spotless financial records, including tax return documents and income and balance sheets. This step may be the most crucial.

Lenders and creditors are looking for indicators that your firm is profitable and viable. Being thoroughly prepared and organized tells them that you’re a committed business person and run a serious operation.

Regularly Monitor Your Business Credit Report

 

You likely won’t have much on your report if you are just starting to build your credit; however, it’s worth monitoring anyway. Your business credit report will include some or all of the following:

 

  • Your firm’s name, address, and phone number 
  • Financial data, including available credit, estimated sales, credit inquiries, use of credit, and collection accounts
  • A business overview that lists your industry, key personnel, years in business, employee numbers, sales, and subsidiaries
  • Tax liens, lawsuits, judgments, company-related fraudulent activity, bankruptcies, and other public records information
  • Depending on the report type, it could also include a company credit score, predictions on how likely your firm will fail, and reporting agency recommendations on how much credit lenders should extend to your company

 

You’ll want to ensure your report information is accurate and contains no errors that might negatively impact your business credit rating. If you find an error, be sure to contact each bureau to report it and make sure it’s corrected.

Create Business Tradelines

 

Business tradelines are lines of credit that you set up between your company and its vendors or suppliers (i.e., an office supply or shipping company). Tradelines can be particularly crucial to building your business credit score. Vendors and suppliers are not required to report this account to the reporting agencies; therefore, the key is to make sure that they do so you receive good credit for paying early or on time.

 

Based on your credit report type, a reported tradeline may include:

 

  • The amount owed
  • Available credit
  • Account terms
  • Recent activity
  • How early or late you pay relative to the due date

 

You might have a business credit report that doesn’t have tradelines. If this is the case, it could be challenging for you to establish business credit without any. This is because both your payment history and tradelines factor into your credit score.

Ensure Your Vendors and Suppliers Report Your Payment Information

 

Be sure to pay attention to whether your vendors or suppliers report your information to at least one agency. If not, you may need to ask them to do this. Otherwise, you may not be building your credit even if you’re paying your vendors on time or early.

 

Before opening your account, you can ask your vendors and suppliers to whom they report your payments, ensuring it will assist you in building your credit score.

 

Open a Business Credit Card 

 

As you continue building your credit, you’ll be able to open a business credit card that reports to the credit bureaus. If you do this, make sure you don’t open one with a hefty annual fee. You don’t want to pay to keep an account open when there are more cost-effective options out there.

 

Also, keep in mind that getting approved will cause a hard credit pull on your personal credit which will further lower your personal credit score.

 

Another option is to open a secured business card. Secured business cards necessitate a cash deposit that acts as your credit line. Again, make sure the card you are planning to get reports to the business credit agencies.

 

Be Sure to Pay on Time or Early

 

A crucial factor in building your business credit score is making sure you have a solid payment history with lenders, vendors, suppliers, and business card issuers. Making on-time payments are just as essential with your company accounts as they are with your personal accounts.

 

For example, you might be late by only a few days, but that late payment will show up in your business credit report. On your personal credit report, an overdue payment likely won’t be reported to the reporting agencies until you are late by 30 days. 

 

Furthermore, some reporting companies, like Paydex used by Dun & Bradstreet, require paying early to get a score higher than 80 out of 100.

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